NetFlix is the reason

The Computer Corner

By Charles Miller

During the period of the economic boom that followed World War II many people were extremely optimistic about the possible peacetime uses for nuclear energy. Electric utilities ran ads saying that nuclear powered plants would generate electricity so inexpensively that it would be too cheap to meter. This idea was one that really resonated with some consumers because in the 1950s there were still alive some people old enough to remember when the electric company did not use meters. There actually was a time that customers paid a low monthly charge and used as much electricity as they wanted.

That practice of flat-rate billing for electricity did not last long into the 20th century because when people started to buy appliances they began to use much more electricity than when they had only a few light bulbs in their homes. Try to imagine what would have been the result if the electric companies had tried the following idea:

The electric company starts loosing money when its customers begin to use radios, washing machines, heaters, etc, because the customer is still paying a low fixed rate for all the electricity they want to use. Rather than raising prices, which would be unpopular with their customers, the electric company approaches the appliance manufacturers saying “Our customers are using a hundred times more electricity than they did before they bought your electric water heater. We can’t charge them more because we told them they could use all the electricity they want for a flat price, so we would like for you to raise the price you charge for electric appliances and send that extra money back to us here at the electric utility.”

As ludicrous as that example sounds, it is precisely what a number of Internet Service Providers (ISPs) are trying to pull off today. ISPs are saddled with customers some of whom are using thousands or even millions of times more bandwidth than they used a few years ago, even though those customers are still paying the same fixed rate they have always paid. The cause of this is that in the last decade content providers, notably NetFlix, Amazon, Hulu and other providers of on-demand streaming media have fundamentally altered the landscape of the internet.

In the early days of the internet it was reasonable to assume that most individual users were likely to make use of about the same volume of online resources; and it worked out well to charge them all the same price. Then along comes NetFlix and suddenly the customer who previously was consuming only a small amount of bandwidth for email and surfing the web suddenly is downloading a million times more bytes of data even while continuing to pay the same low price as before.

The ISPs soon found they needed to invest large amounts of money to upgrade their infrastructure to handle the additional traffic. Fiber optic cables and servers cost money. Looking for a way to pay for the necessary upgrades to keep the internet working a number of ISPs have decided they want to avoid the unpopular route of raising the prices they charge and have beseeched NetFlix and other content providers to raise their prices then send that money back down to the local Internet Service Providers.

It is easy to see both sides here. ISPs know that NetFlix is the reason they need to spend millions upgrading their bandwidth capacity. Content providers like NetFlix are not eager to take on the bookkeeping nightmare of reimbursing ISPs for extra bandwidth usage costs they cause.

It remains to be learned how this will all play out. The only two certainties are that money will absolutely have to be invested to keep the internet working, and if you want to know who will pay for it, just look in the mirror.

Charles Miller is a freelance computer consultant, a frequent visitor to San Miguel since 1981 and now practically a full-time resident. He may be contacted at 044-415-101-8528 or email FAQ8 (at) SMAguru.com.